Dear Bankruptcy Adviser,
Given this economy, we fell into a nasty trap. We sold our house back in January 2008 and took a $70,000 hit when selling it, due to home equity loans.

Now we own another house that we are able to make the mortgage payments on. However, we have a substantial amount of debt accrued over the year from trying to come out from being upside down on the old house as well as moving costs.

Our estimated debt is at $75,000. We do not have the equity in our house to do another HELOC, but don’t have enough income to continue paying the credit cards without racking up more debt. Can you please advise if filing bankruptcy is something we should consider?
— Wendi

Dear Wendi,
Deciding whether to file bankruptcy is something that you must take very seriously. You need to look at your financial situation carefully to determine whether you can afford to file bankruptcy.

Look at your situation objectively. What do you need credit for right now? You own your house and are current on the payments. Therefore, you do not need good credit to buy a home. You may or may not own your cars outright. If you have older cars that are in constant need of repair, then your credit will be necessary to purchase another vehicle. However, car dealers — used and new — are struggling. And deals are available to the prudent and persistent buyer.

You need to have a thorough assessment of your credit card debt; $75,000 is not outrageous, but one issue is the amount of time it took you to go from zero to your current balances. While you do not need to work with an attorney to file bankruptcy, you might want to discuss your credit card usage with a professional prior to filing. A consultation might give you some idea as to the risks you might face.

Another issue to consider is the most difficult for me to answer. Each state has different bankruptcy laws regarding what you can or cannot protect. Only a bankruptcy professional in your area — or substantial Internet research — will be able to tell you what you can and cannot protect in bankruptcy. There are legal and legitimate ways to protect valuable assets, but you must be very careful that you do not illegally try to transfer or protect assets that otherwise would be lost.

Finally, you need to decide whether you can stomach the anxiety of filing for bankruptcy. Most of the time, shame is the largest obstacle my clients face. They feel like they have failed and, in many cases, consider themselves failures. While I do not agree with this opinion, I understand where it comes from.

Remember that the health and sanity of you and your family are paramount to whether some credit card company gets paid back. I understand you made the commitment to pay your debts, but do not allow yourself to be consumed by guilt or shame, and thus remain in your current untenable situation.

View your situation as objectively as possible. Don’t let emotion overtake your thought process and hopefully, that will allow you to come to the best decision for you and your family.